BEIJING, Nov 8 (Reuters) - President Hu Jintao warned
China's incoming leaders on Thursday that corruption threatened
the ruling Communist Party and the state, but said the party
must stay in charge as it battles growing social unrest.

In a state-of-the-nation address to more than 2,000
hand-picked party delegates before he hands over power, Hu
acknowledged that public anger over graft and issues like
environmental degradation had undermined the party's support and
led to surging numbers of protests.

"Combating corruption and promoting political integrity,
which is a major political issue of great concern to the people,
is a clear-cut and long-term political commitment of the party,"
Hu said.

"If we fail to handle this issue well, it could prove fatal
to the party, and even cause the collapse of the party and the
fall of the state. We must thus make unremitting efforts to
combat corruption."

He promised political reform, but only to a degree, saying:
"We will never copy a Western political system."

"We will neither walk on the closed and rigid road, nor will
we walk down the evil road of changing (our) flags and banners,"
Hu said.

He also stressed the need to strengthen the armed forces and
protect sea territory amid disputes with Japan and Southeast
Asian nations.

Hu was opening a week-long congress at Beijing's Great Hall
of the People that will usher in a once-in-a-decade leadership
change in the world's second-largest economy.

Despite the high profile of the event and the focus on
sensitive issues like reform and graft, the comments were not
considered unusual since they mainly reinforced existing ideas
and themes.

"It was a rather conservative report," said Jin Zhong, the
editor of Open Magazine, an independent Hong Kong publication
that specialises in Chinese politics. "There's nothing in there
that suggests any breakthrough in political reforms."

The run-up to the carefully choreographed meeting, at which
Hu will hand over his post as party chief to anointed successor
Vice President Xi Jinping, has been overshadowed by a corruption
scandal involving one-time high-flying politician Bo Xilai.

The party has accused him of taking bribes and abusing his
power to cover up his wife's murder of a British businessman in
the southwestern city of Chongqing, which he used to run.

While Hu did not name Bo - a man once considered a contender
for top office himself - he left little doubt about the target.

"All those who violate party discipline and state laws,
whoever they are and whatever power or official positions they
have, must be brought to justice without mercy," Hu told
delegates, one of whom was his predecessor, Jiang Zemin.

"Leading officials, especially high-ranking officials, must
... exercise strict self-discipline and strengthen education and
supervision over their families and their staff; and they should
never seek any privilege."

The New York Times said last month that the family of
Premier Wen Jiabao had accumulated at least $2.7 billion in
"hidden riches", a report China labelled a smear.

JIANG'S CLOUT

Hu entered the venue accompanied by Jiang, 86, signalling
the former president still wields influence in the party and in
the secretive deliberations to decide on the new leaders. As Hu
delivered his speech under a massive, golden hammer and sickle,
a healthy-looking Jiang sat flanked by senior members, party
elders such as Li Peng and incoming leaders such as Xi.

The congress ends on Nov. 14, when the party's new Standing
Committee, at the apex of power, will be unveiled. Only Xi and
his deputy Li Keqiang are certain to be on what is likely to be
a seven-member committee, and about eight other candidates are
vying for the other places.

The congress also rubber-stamps the selection of about two
dozen people to the party's Politburo, and approves scores of
other appointments, including provincial chiefs and heads of
some state-owned enterprises.

"We must uphold the leadership of the party," Hu said.

He also named health care, housing, the environment, food
and drug safety and public security as areas where problems had
"increased markedly".

The meeting is a chance for Hu to cement his legacy before
retirement and ensure a smooth handover of power, and his
prime-time speech was a chance to push his achievements and
perhaps help steer a course going forward.

While Hu promised "reforms to the political structure" and
more encouragement of debate within the party, he gave no hint
that China would allow broader popular participation.

"We should ... give full play to the strength of the
socialist political system and draw on the political
achievements of other societies. However, we will never copy a
Western political system," said Hu, who mentioned "socialism
with Chinese characteristics" no less than 78 times in his
speech.

While Hu will step down as party leader, Xi will only take
over state duties at the annual meeting of parliament in March.

Just weeks after anti-Japan riots swept city streets
following a row over disputed islands, Hu also said China should
strengthen the armed forces, protect its maritime interests and
be prepared for "local war" in the information age.

China is also locked in dispute with Southeast Asian
neighbours over areas of the South China Sea. Relations with the
United States have been bogged down by accusations of military
assertiveness in the region from both sides.

The government has tightened security in the run-up to the
congress, even banning the flying of pigeons in the capital, and
has either locked up or expelled dozens of dissidents.

Security was especially tight on Thursday around the Great
Hall and Tiananmen Square next door, the scene of pro-democracy
protests in 1989 that were crushed by the military.

Police dragged away a screaming protester as the Chinese
national flag was raised at dawn.

The party, which came to power in 1949 after a long and
bloody civil war, has in recent years tied its legitimacy to
economic growth and lifting hundreds of millions out of poverty.

Hu said China's development should be "much more balanced,
coordinated and sustainable", and it should double its 2010 GDP
and per capita income by 2020, as previous targets have implied.

But China experts say that unless the new leadership pushes
through stalled reforms, the nation risks economic malaise,
deepening unrest, and perhaps even a crisis that could shake the
party's grip on power.

This year marked the first time Chinese Internet users could
discuss the congress on Weibo, China's version of Twitter.

Many said his reference to not walking on a "closed and
rigid road" not the "evil road of changing (our) flags and
banners" reflected gridlock between two factions - the
reformists and the leftists, who are critical of a market-based
reform agenda.

"Which road to walk on?" a microblogger wrote. "Both the
right and left have blocked you to death, so where can you go?"